Exercises
1.- Custom Computers, Inc. assembles custom home computers. Annual demand for
heat sinks is 5,200 units, the annual inventory cost rate is $3 per unit, and the cost to
place an order is estimated to be $50. Lead time is 2 weeks.
A) What is the economic order quantity for the heat sinks?
B) What is the total annual cost (ordering + holding) of this plan?
C) What is the reorder point for this plan?
2.- Greg’s Pharmacy uses a periodic review inventory system. Every Friday, the pharmacist
reviews her inventory and determines the size of the replenishment order. For example,
she knows that demand for 500-mg metformin tablets, a drug for diabetics, is normally
distributed with a mean of 6,000 tablets each week with a standard deviation of 500
tablets per week. Lead time is three weeks. The desired cycle-service level is 95
percent (z = 1.645). There are currently no outstanding orders.
A) Determine the order quantity (Q).
B) How many tablets should be ordered if the current inventory of metformin is 19,000
tablets?
3.- The Operations Analyst for a company is studying the inventory stocking policy for a
product (#A123). His records show that the demand per day is normally distributed
with a mean of 210 and a standard deviation of demand of 5. Lead time is 4 days. The
current reorder point is 860.
A) Compute the probability of stock out for the current reorder point.
B) The analyst has just been informed that the (above) standard deviation of daily
demand was computed incorrectly. The corrected standard deviation is 7.07
What would be the correct reorder point be in order to retain the same probability
of stockout (as in part (a))?
C) The analyst has some new information. His clerk has informed him that the lead time
has changed to 5 days. What would the new reorder point be if the allowed
probability of stockout is still the same as before?
4.- The Cool Breeze company manufactures household fans. They purchase fan motors for
the fans from the Watts Electric Motor Co. Cool Breeze Co. produces 4800 fans
annually. The cost of placing an order is $40. In order to hold their inventory, they
calculate that it costs them 25% of inventory value (unit price).
Use the following pricing information to compute:
A) the best quantity of electric motors to order
B) the total cost associated with that order
Lot Size
0 – 399
400 – 1199
1200 – 4799
4800 and over
Unit Price
10.00
9.00
8.50
8.00
